Big Or Small, Sequestration Cuts Felt Nationwide

It's been three months since the start of across-the-board, federal spending cuts. Renee Montagne talks to David Wessel, economics editor at The Wall Street Journal, about how badly the sequestration is cutting into the economy.

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LINDA WERTHEIMER, HOST:

It's MORNING EDITION from NPR News. I'm Linda Wertheimer.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne.

It's been three months since the start of what we've come to know as sequestration, those across-the-board spending cuts that were triggered when Congress and the president failed to make a deal to reduce the deficit. At the time the White House warned that the cuts would be devastating to the American economy; others argued not.

We thought it would be a good time to get a reality check from The Wall Street Journal's David Wessel for today's Business Bottom Line. Good morning.

DAVID WESSEL: Good morning, Renee.

MONTAGNE: Well, start with how are the spending cuts showing up around the country.

WESSEL: In lots of little ways, Renee. Or not so little if you're the one whose paycheck is little smaller, or you're try to go to a bathroom in a national park where the toilets have been closed in some places.

Federal public defenders across the country who are hardly(ph) under work are facing furloughs of up to 20 days this year. The military is mowing grass less often at bases. One church in Hyattsville, Maryland says funding for its Meals on Wheels program for the elderly has been cut from $4,800 a year to $1,100 a year. And we know that fewer low-income Americans are going to get vouchers to pay for their rent, perhaps as many as 125,000 families, according to the White House.

You see the effects much more in communities that get a lot of federal money: Indian reservations, schools systems around military bases. And some of the effects won't show up for a long time. The National Institutes of Health, for instance, is making fewer grants. That might mean fewer cures down the road but not much you can see now.

MONTAGNE: So these cuts and whatnot, they feel really awful to the people who are experiencing them. But what about the larger economy?

WESSEL: Well, the spending cuts of the sequester - these across-the-board spending cuts - and the payroll and income taxes that took effect at the beginning of this year, are definite minuses on the economy. If you look at what the Commerce Department told us about the first quarter, the economy grew at a 2.4 percent annual rate. But only because the private sector overwhelmed the cutbacks in federal purchases. They actually subtracted seven-tenths of a percent from growth.

Consumer spending though has held up surprisingly well. Apparently this is the benefit of - both economic and psychologically - of higher stock prices and higher housing prices, which are making people feel richer and allowing them to keep spending, even though there's these negatives and their wages are going up.

I mean despite the sequester and all this stuff in Washington, consumer confidence has now risen to the highest level in five years.

MONTAGNE: And David, does that mean that despite all the handwringing, what, the economy is just going to manage to shrug this off?

WESSEL: I don't think so. I mean some federal agencies had left vacancies unfilled in anticipation of the sequester. Some have found little pockets of money to offset the effects in the near-term. Others had money in the pipeline but that's drying up. So if you talk to economic forecasters or indeed some officials at the Federal Reserve, they say they're worried that the effects of this spending restraint may have bigger negative effects in the second quarter of this year and the third quarter of this year.

And of course without something coming out of Congress and the president, these spending cuts will persist into the fiscal year that begins October 1, and that's really worrying the Pentagon.

MONTAGNE: Of course the aim of the sequester was to push Congress and the president to come up with an alternative way to reduce the deficit, which didn't happen. But what has happened to that idea?

WESSEL: Well, it's a good question, Renee. Basically the momentum to deal with the long-term deficit has evaporated. The near-term deficit is coming down. The pace of health care cost increases is slowing. The climate for bipartisan compromise certainly hasn't improved in the past few weeks. The economy seems to be doing a little better. And the financial markets are preoccupied with all sorts of other things.

So there's very little pressure on Washington to deal with the long-term deficit problems: Social Security, health care costs that still remain but they've kind of lost interest.

MONTAGNE: David Wessel, economics editor of The Wall Street Journal, thanks very much.

WESSEL: You're welcome.

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